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Berkshire posts record operating profit, rising rates boost Buffett’s returns

Warren Buffett, CEO of Berkshire Hathaway Inc, pauses while playing bridge as part of the company annual meeting weekend in Omaha, Nebraska U.S. May 6, 2018. REUTERS/Rick Wilking/File Photo/File Photo

Berkshire Hathaway (BRKa.N) on Saturday posted its highest ever quarterly operating profit, while gains from stock holdings helped the conglomerate led by billionaire Warren Buffett swing to a nearly $36 billion overall profit.

Rising interest rates, and better results at the Geico car insurer, allowed Berkshire’s insurance businesses to generate more money in the second quarter, with profit up 38% and interest and other investment income growing sixfold.

But while operating profit topped $10 billion, those same rising rates have made it more costly to buy and upgrade homes, hurting results at Berkshire’s Clayton Homes and building products businesses, and buy RVs from its Forest River unit, where revenue sank 34%.

Profit also fell at one of Berkshire’s largest businesses, the BNSF railroad, with a 24% decline reflecting lower shipments of consumer goods, price competition from truckers, and higher pay for employees.

Berkshire also appeared to remain wary of high stock prices as U.S. equities extended their rally.

During the second quarter it sold $8 billion more stocks than it bought and repurchased less of its own stock, and it ended June with a near-record $147.4 billion of cash.

“The story here is interest rates, and valuations of stocks,” said Jim Shanahan, an Edward Jones analyst with a “buy” rating on Berkshire.

“The earnings impact of higher interest rates on investment income is offsetting the economic softness caused by those same rates,” he added. “And it’s clear there aren’t a lot of attractive investment opportunities out there.”

Investors closely watch Berkshire because of Buffett’s reputation, and because results from the Omaha, Nebraska-based company’s operating units often mirror broader economic trends.

Those units also include Berkshire’s namesake energy company, several industrial companies, and familiar brands such as Dairy Queen, Duracell, Fruit of the Loom and See’s Candies.

Buffett turns 93 on August 30. He is worth $117.5 billion and the world’s sixth-richest person, Forbes magazine said.

NOT LOVING VALUATIONS

Quarterly operating profit rose 7% to $10.04 billion, or about $6,938 per Class A share, from $9.42 billion a year earlier.

Operating results reflected recent purchases of Alleghany, whose businesses include various insurers and the toy company that makes Squishmallows, and the Pilot truck stop operator, which added $114 million of profit.

Net income totaled $35.91 billion, or $24,775 per Class A share, compared with a year-earlier $43.62 billion loss.

Year-earlier results reflected an accounting change for some insurance contracts.

Berkshire repurchased $1.4 billion of stock in the quarter, down from $4.4 billion from January to March.

It also sold $12.6 billion of stocks, while buying just $4.6 billion. Apple (AAPL.O) comprised about half of Berkshire’s $353 billion equity portfolio.

“They’re not loving valuations,” said Cathy Seifert, a CFRA Research analyst with a “hold” rating on Berkshire.

“The quarter was strong, but organic growth trends are not that robust,” Seifert added. “The question that will be on investors’ minds is how to position the company for strong growth without more frequent acquisitions.”

Net results included $25.9 billion of largely unrealized gains from investments and derivatives, which accounting rules require Berkshire to report. This adds volatility to quarterly results, and Buffett urges investors to ignore the fluctuations.

Source: https://www.reuters.com/business/berkshire-posts-record-operating-profit-359-billion-net-income-2023-08-05/

UAE approves additional $1 billion funding to Pakistan: Finance Minister Ishaq Dhar

Finance Minister Dar said the Gulf nation has confirmed its commitment to the International Monetary Fund, paving way for the staff-level agreement to unlock a $1.1 billion loan by the global lender.

Pakistan’s Finance Minister Ishaq Dhar on April 4 announced that the UAE has approved $1 billion in financial support, taking the cash-strapped nation a step closer to unlocking the crucial IMF bailout.

Pakistan is tackling a major economic crisis as it awaits a much-needed $1.1 billion tranche of funding from the Washington-based International Monetary Fund, part of a $6.5 billion bailout package the IMF approved in 2019.

Finance Minister Dar said the Gulf nation has confirmed its commitment to the International Monetary Fund, paving way for the staff-level agreement to unlock a $1.1 billion loan by the global lender.

“UAE authorities have confirmed to IMF for their bilateral support of $1 billion to Pakistan,” Mr. Dar said in a tweet, adding that the State Bank of Pakistan (SBP) was now “engaged for needful documentation for taking the said deposit from UAE authorities”.

The UAE rolled over its deposits of $2 billion in January this year too, providing critical support to cash-starved Pakistan’s depleting foreign exchange reserves.

In another tweet, Mr. Dar announced that the apex bank is getting the third and last disbursement from the Industrial and Commercial Bank of China (ICBC), worth $300 million, out of its $1.3 billion loan.

“Out of Chinese bank’s ICBC approved facility of $1.3bn (which was earlier repaid by Pakistan), State Bank of Pakistan would receive back third and last disbursement today in its account amounting to $300mn,” the Finance Minister tweeted.

The ICBC approved a rollover of a $1.3 billion loan for Pakistan on March 3 and made the first payment of $500 million on the same day, while the second payment of the same amount was made on March 17.

The IMF lowered its forecast for Pakistan’s economic growth rate days ago from 2% to just 0.5% for the current fiscal year amid high inflation and a growing unemployment rate in the cash-strapped country.

The new development brought debt-struck Pakistan closer to signing the staff-level agreement with the IMF and getting access to multilateral loans.

Source: https://www.thehindu.com/news/international/uae-approves-additional-1-billion-funding-to-pakistan-finance-minister-ishaq-dhar/article66737215.ece

Q4 likely to be modest for India Inc

With prices of raw materials softening, a range of user companies are expected to post better operating margins than they did in the December 2022 quarter.

The robust GST collections in FY23 with the March mop up coming in at Rs 1.6 trillion are a sign that India Inc is doing well even of some of this can be attributed to high inflation. (IE)

Corporate profits for the March quarter are expected to be modest with the year-on-year growth in high single digits. Earnings for the Nifty 50 set of companies are estimated to increase by 9% y-o-y and 8% quarter-on-quarter, according to an estimate by Kotak Institutional Equities (KIE).

With prices of raw materials softening, a range of user companies are expected to post better operating margins than they did in the December 2022 quarter.

Net profits for a sample of 3,311 companies, banks and financials had risen by just about 5% year-on-year in the December 2022 quarter even though revenues increased by a good 17.5% y-o-y since operating margins contracted 150 bps y-o-y.

Although consumer demand is understood to have faded somewhat post the festive season, the macro environment in Q4FY23 has been reasonably good. The robust GST collections in FY23 with the March mop up coming in at Rs 1.6 trillion are a sign that India Inc is doing well even of some of this can be attributed to high inflation. The PMI for both manufacturing and services has held up although the latter slowed in March. But the recovery is clearly picking up steam going by strong air traffic numbers, hotel occupancies and demand for power. Moreover, credit flows have risen by about 16-17% y-o-y suggesting demand from consumers for homes and from businesses for working capital is buoyant.

Profits of banks, which have registered strong loan growth and will continue to provide much smaller sums for loan losses, will be exceptionally good and lead the earnings growth in Q3. Pre-provisioning profits for front-line lenders could jump by more than 22% y-o-y. Sales of automobiles in the home market have been reasonably good in the March quarter especially of passenger vehicles though exports of 2-wheelers have been weak. Some of the demand in the commercial vehicles segment has been driven by pre-buying ahead of the transition to BSVI Phase II.

On the other hand, earnings of metals producers, whose realisations have been weaker, will drag down the aggregate numbers. With rural demand yet subdued, makers of consumer staples are tipped to report mediocre numbers, much of it driven by price hikes rather than volumes. Results from most manufacturers of consumer durables too are likely to be lacklustre amid muted demand and pricing pressure. KIE expects the net profits for the portfolio of companies that it tracks to increase by just 6.5% y-o-y and 17% q-o-q.

Source: https://www.financialexpress.com/industry/q4-likely-to-be-modest-for-india-inc/3040030/

Deutsche Bank share slide reignites worries among investors

By Natalie Sherman & Simon Jack & Tom Espiner

Sharp declines in banking shares in Europe have renewed concerns the panic triggered by the collapse of two US banks and rushed takeover of Swiss giant Credit Suisse may not be easily contained.

Shares in Germany’s Deutsche Bank fell by 14% at one point on Friday, with other lenders also seeing big losses.

London’s FTSE 100 ended the day down 1.3%, while stock markets in Germany and France dropped even more sharply.

But US fears did not materialise.

After falling early in the day, the Dow Jones Industrial Average gained 0.4% and the S&P 500 rose almost 0.6%, while the Nasdaq ended 0.3% higher.

The rise came despite declines in shares of big banks such as JPMorgan Chase and Morgan Stanley.

In Europe, the banks hit by a sell-off from worried investors included Germany’s Commerzbank, which saw shares fall about 5%. France’s Societe Generale ended down about 6% while in the UK, Standard Chartered was the biggest faller, down more than 6%.

Deutsche recovered from its steepest losses but still closed more than 8% lower.

Russ Mould, investment director at AJ Bell, told the BBC the drop in Deutsche Bank’s share price, and a sharp jump in the cost of insuring against a possible default by the bank, was “indicative of a wider loss of confidence in the banking sector”.

“There’s a gathering fear that central banks may have overdone it with interest rate increases, having left them too low for too long,” he said.

Central banks slashed interest rates during the 2008 global financial crisis and again when the pandemic hit in 2020 as part of efforts to encourage economic growth.

But over the past year or so authorities have been raising rates sharply to try to tame soaring price increases.

These rate rises have hit the value of investments that banks keep some of their money in, and contributed to the bank failures in the US.

Share prices have fallen across the sector, as high-profile investors warn the collapses are symptoms of deeper problems in the system, with other pockets of distress yet to emerge.

Higher interest rates have also raised the possibility of recession, Mr Mould said, and if that happens, “banks will generally find it pretty hard going”.

The collapse of Silicon Valley Bank helped to trigger the recent loss of confidence

Central banks and governments have been trying to calm market worries.

German Chancellor Olaf Scholz defended Deutsche Bank at a news conference on Friday, noting that it had “thoroughly reorganised and modernised its business model” and was “very profitable”.

Bank of England governor Andrew Bailey also told the BBC that the UK banking system was “safe and sound”.

But mixed messages from US authorities as to whether they were prepared to guarantee all bank deposits have led to confusion and hopes that calm had been restored to the sector appear to be have been premature.

US Treasury Secretary Janet Yellen convened an unexpected Friday meeting with regulators on financial stability, while use of an emergency lending programme for banks that the US central bank created this month has increased over the past week, the Federal Reserve reported.

Bloomberg News also reported that UBS and Credit Suisse were being investigated by the US Department of Justice into whether they had helped Russian oligarchs avoid sanctions.

Source : https://www.bbc.com/news/business-65064378